Ofgem is considering allowing energy suppliers to once again offer cheaper deals to new customers than to existing ones, a move aimed at reigniting competition in the market. This potential reversal of the ban on “acquisition tariffs” comes after the practice was halted in April 2022 to stabilize the market following the energy price surge triggered by Russia’s invasion of Ukraine. Although the ban was extended beyond its initial one-year term due to persistently high and volatile prices, Ofgem now believes it may no longer be necessary for market stability and could be contributing to higher household energy bills by stifling competition.
Martin Lewis, founder and chair of MoneySavingExpert.com, highlighted the unusual nature of current circumstances: “In normal times, I wouldn’t call for firms to be allowed to offer new customers cheaper prices than existing ones, yet these aren’t normal times.”
Energy supplier switching has drastically decreased during the energy crisis. Before the surge in energy costs in 2021, switching rates were three times higher than they are now, as most suppliers had to cancel deals priced below the government’s energy price cap, reducing the incentive for consumers to seek better deals. Ofgem’s latest data shows that there were 318,000 gas and electricity account switches in February, compared to 986,000 in March 2021.
“The energy market is broken,” Lewis stated. “We need anything possible right now to stimulate competition and bring prices down. The current UK retail energy system was built on the premise that firms would fight each other for customers and compete on price – yet that’s hardly happening. Most firms are currently happy to sit on their existing customers and profit. Where once you could switch and save 30%, now it’s a few per cent at most. So, in reality, the energy price cap, set up as a remedial backstop rate, is now pretty much the price.”
However, fuel poverty campaigners caution that ending the ban could result in the return of “discriminatory tariffs” that penalize customers based on factors such as their location, meter type, or whether they are on a priority register. Simon Francis, coordinator of the End Fuel Poverty Coalition, warned, “In 2009, Ofgem banned discriminatory pricing after tariffs emerged which had unexplained differentials between payment methods, regions, and fuels [gas and electricity]. However, in 2012, the licence condition which banned these tariffs was allowed to lapse. If Ofgem wants market conditions to return, it must also beef up its consumer protections and ensure we don’t see a surge in discriminatory tariffs.”